Is The ‘Build-to-Rent’ Sector Set To Replace Buy-to-Let Landlords?
Since changes to the way the income generated by buy-to-let investment properties were announced by the government three years ago, most significantly a phasing out of mortgage interest payment being tax deductible, 120,000 private landlords have left the sector. At the same time, the escalating cost of home ownership, particularly hitting first time buyers who face a struggle to amass the size of deposit now required, means the size of the rental market has increased.
Another driver of the rental market is the growing mobility of the UK’s workforce. Professionals change their employer or position, and often location with it, with increasing regularity compared to previous generations. Owning a property can often, for this demographic, be seen as a constraint to professional development rather than the security it represented to their parents’ generation.
The obvious imbalance these two contrasting trends is bringing to the UK’s rental market has, however, been seized upon by a new breed of landlord. The ‘build-to-rent’ sector, which refers to the construction of blocks of apartment communities where apartments are custom built for the rental sector and also include on-site services such as a concierge and social and leisure facilities from cafes or rooftop bars to gyms and children’s play areas, is growing quickly to pick up the slack. The British Property Federation recently released figures showing that the number of build-to-rent properties under construction in the UK has surged by 40% over the past year.
The developers behind the build-to-rent boom are predominantly from the UK or USA, where the sector is more mature. They are successfully attracting institutional investors with big pension and insurance fund providers such as Legal & General and M&G among those known to have sunk money into major build-to-rent projects across the UK. The UK is now quickly catching up with Germany, where the housing market has been much more rental focused for decades, in terms of the value of build-to-rent investment being attracted.
There are 43,374 build-to-rent homes under construction in the UK and nearly 100,000 already built by the end of 2018. Of those under construction, 19,304 are in London and the other 24,010 outside of the capital. The biggest project under construction at present is a 5000 homes development near Wembley Stadium in London. The developer behind the huge project is Britain’s Quintain.
However, despite its rapid growth, the build-to-rent sector still only accounts for a small share of a rental properties market still dominated by private buy-to-let landlords. 5 million families rent in the UK, against which less than 150,000 build-to-rent properties are a drop in the ocean. But the trend seems set to continue. At present, build-to-rent developments mainly target the more affluent part of the rental market with professional property management, 3-year leases and amenities coming at a premium. However, as the sector matures it can be expected that more ‘no frills’ build-to-rent developments will come to market at more accessible price points.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.